All posts tagged LTROs

There still seems to be some confusion lurking about the ECB’s three-year long-term refinancing operations and the banks that waded into them.

Italian banks were the biggest participants, a major financial publication declared on its front page Friday.

Actually, that comes from estimates made by Morgan Stanley. And it suggests that the ECB’s new measure is working exactly as planned.

Italian banks probably took a third of the €489 billion in three-year LTROs, and in so doing basically solved their wholesale funding problems for the year, greatly reducing the risk of a euro-zone banking meltdown, according to Morgan Stanley.

The ECB presumably welcomes this outcome, not least because it matches its aims to promote financial stability in the euro area.

Ceramic figurines, known locally as caganers, of cartoon character Asterix.

It’s almost something out of a comic book. A French comic book. A rustic band of sovereign debtors wanting to lead the simple life is besieged by the markets’ militarized legions, whose only aim is to destroy them.

Lucky for these sovereigns they have something up their sleeves. A magical potion produced by Draghifix, the community’s high druid and main provider of this elixir of liquidity that makes weedy, ordinary sovereigns market beaters. The only villager not needing the magic potion is the mighty Merkelix, who fell into a vat as an infant.

The locals drink deeply, the (flood)gates to the little rustic haven open and out roar its once weedy technocrats to defeat the markets’ endless columns of hapless short sellers.

Paf. Boom. Pow.

It’s all just as the slightly ridiculous local chieftain Sarkosix ordained from the top of his shield raised on the shoulders of his loyal men so that he can see what’s going on.

And everyone lives happily ever after to feast on bores in a jolly summit of old-style European pork barreling that those nasty markets tried to take away.

Apologies to readers unfamiliar with Asterix. Or, even worse, who might prefer the Belgian Tintin.

There is no debate. There is no option. European banks have to start buying euro-zone sovereign bonds now.

If they don’t, the banks will not only be putting the euro zone in peril but they will be putting their own futures at stake.

The European Central Bank’s sale of €489 billion to 523 European banks on Wednesday has sparked a debate over just what the banks will do with the money.

Given their own refinancing needs, with as much as €300 billion falling due in the first quarter of next year, and given the parlous state of the European interbank market, it wouldn’t be surprising if many banks are tempted to keep the money on their balance sheets to ensure their own liquidity next year.

This would certainly help to explain why Italian banks were so active in the so-called long-term refinancing operation, taking up as much as one quarter of the total loans. Italian banks are seen among the most at risk from the sovereign debt crisis, especially given the recent steady rise in Italian sovereign debt yields.